Booze business bites back at lawsuits

Spirits, beer firms file for fees after winning case

By

WilliamSpain

CHICAGO (MarketWatch) - In its pushback against a series of lawsuits, Big Alcohol has broken out the Big Stick.

Following their victory in a Colorado class-action case that claimed the industry marketed to minors and sought "disgorgement" of profits from money the youngsters allegedly spent on their products, a group of beer and spirits companies recently decided to make the losers pay.

Judge James Zimmerman found there were no facts in support of the plaintiff's claims, ruled they had suffered no injury and had no standing to bring the lawsuit. He also awarded the defendants "reasonable attorney fees and costs in defending the action."

And, just before Christmas, the defendants filed to collect -- to the tune of more than $350,000.

While the group said the fee won't cover all the money spent defending themselves, it isn't the cash they want but the precedent - and a deterrent. There are virtually identical class-action cases working their way through the courts in five other states: Michigan, North Carolina, Ohio, West Virginia and Wisconsin, and the District of Columbia. Any plaintiff success could lead to copycats in rest of the country and a landslide of expensive litigation for the industry.

"I think it is a largely symbolic gesture and I doubt that those fees will ever be collected," said Tom Pirko, president of Bevmark, an industry consultant. "Sure, they'd like to get the money but what they are really thinking about is that they have to more than stand firm."

Although they have all, either in the media or in court filings, rejected claims they market to minors, none of the companies contacted would comment on the record about the decision to seek fees from the plaintiffs.

Coors was the exception. "The court found the case so lacking in merit that it took the unusual step of ordering the plaintiffs to pay the legal fees of the companies they sued," Coors said in a written response to MarketWatch questions.

The plaintiff's lawyers are also keeping mum. David Boies III of the Fairfax, Va., firm of Straus & Boies (and son of the lawyer who lost the Bush v. Gore case in 2000) didn't return repeated phone calls seeking comment. He has until later this month to respond to the fee filing but the judge will ultimately decide how much is owed and who - Boies, his clients or both - is on the hook for it.

Not named in the Colorado case are other huge players - and big advertising spenders like Anheuser-Busch
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SABMiller (SAB) and Fortune Brands's
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Jim Beam unit.

The filing for fees was made jointly by all defendants, the same way the defense was run. Three people involved in the discussions said the decision was unanimous. The same people also said the intent was to send a clear message and act as deterrent to others suits.

The industry, Pirko said "is feeling some vulnerability and I think they have come to the conclusion that retreat isn't in their best interests."

Benj Steinman, editor of Beer Marketer's Insights, agrees: "They are trying to make an example of [Boies]. And this seemed to be a particularly flimsy case."

He also noted the "highly unusual" level of cooperation among the defendants. Beer companies compete ferociously, as do spirits makers. And the two sectors go at each other hammer-and-tong over both market share and taxation/regulation issues.

"I guess they are facing a common enemy and not knocking each other around for a change," Steinman said. "You won't see a heck of a lot of that."

George Hacker, director of the Alcohol Policies Project of the Center for Science in the Public Interest, said the fee award adds a powerful disincentive to suing the industry on similar claims.

"Suing a mega-billion dollar corporation to start with is enough of a deterrent for most plaintiffs, but this is certainly an additional one," Hacker said. "These are difficult cases to bring but having to pay the defendant [what are] essentially damages only adds to the burden."

Hacker's group has locked horns with the alcoholic beverage industry previously but wasn't directly involved in the Colorado case.

The rights of winning defendants to seek fees vary widely from state to state and between their courts and federal ones. But the awarding of them is still rare. Tobacco firms have been successful in virtually all of the class-action cases brought against them but have almost never been able to recoup any of their legal costs. A representative of Altria Group's
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Philip Morris, for instance, could remember only one case from almost a decade ago.

"I have not seen this very often," said Paul Bland, a staff attorney with Trial Lawyers for Public Justice. "The standards for these kinds of sanctions are very high and they are awarded very infrequently."

Such an award "is extremely rare and usually only [comes] in the cases of the most serious abuse," Bland said.

If the strategy to seek fees helps ward off other lawsuits, it also carries some risk. A company's public image could be in jeopardy if an individual plaintiff ends up in financial distress as a result - and that fact is widely publicized.

"Right or wrong, you can never win going against parents and their children in the court of public opinion," pointed out Michael Kempner, CEO of MWW Group, a public relations agency owned by Interpublic Group
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"It will always side with them - particularly against a liquor company."

People may not sympathize much with lawyers who get hurt, he said, but a fee award that breaks the bank of a middle-class family is a different matter.

"The potential for a public relations disaster is quite high - particularly if the plaintiffs are actually forced to pay," Kempner said.

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